The world of cryptocurrency is weird and complicated.

In this four-part series, Information Age looks at the history of crypto, how you can get your hands on some, what you can do with it, and the Australian innovators looking to capitalise on this emerging technology.

Part I:

Well, it looks like an historic cryptocurrency bull run is over.

Prices across the board took a dive last month, bringing an end to another flurry of activity for the largely speculative market.

Futures markets are also signaling the onset of a cryptocurrency winter as traders exercise caution around what continues to be a volatile ecosystem.

Good riddance, you might be thinking, its just a form of unregulated gambling.

Or maybe you got swept up in the latest hype cycle and took your first steps into crypto through Dogecoin only to sell-up in disgust when the Elon Musk-fueled mirage started fading.

Either way, the end of another surge in mainstream attention is as good a time as any to look closer at the history of cryptocurrency and its largest asset: bitcoin.

Who is Satoshi Nakamoto?

Satoshi Nakamoto invented bitcoin and nobody knows who he/she/they really are.

Over the years, many people have claimed to know or be Satoshi Nakamoto including Australian computer scientist Craig Wright who tied himself up in legal battles about the authenticity of his claim.

Investigative journalists have spent months trying to track Nakamoto down including Forbes writer Andy Greenberg who thought he cracked the case in 2014 when a source found a possible lead in cypherpunk Hal Finney.

Seven years on and Nakamotos identity remains a mystery, but his legacy lives on in an asset that is worth around $1 trillion, and which spawned an entire ecosystem valued more than $1.5 quadrillion.

The history of bitcoin has long roots in alternative digital currencies like David Chaums Digicash, but its simpler to start with Nakamotos 2008 whitepaper titled Bitcoin: A Peer-to-Peer Electronic Cash System.

In it, Nakamoto outlines what he sees as a major flaw in the existing digital financial system: trust.

Transactions were always going to be mediated through a third-party financial institution due to issues around fraud and disputes which in-turn slowed down e-commerce and, crucially, entrenched capital power in the hands of large banks and a cabal of global finance giants.

The system was going to stay broken without a way for ordinary people and small businesses to exchange value in a way similar to real-world cash transactions.

What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party, Nakamoto said.

Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily be implemented to protect buyers.

A trustless system of value exchange that allowed for escrow between parties would make bitcoin the go-to currency for black market trading of drugs and other illicit material on dark web sites like the Silk Road but it also carried connotations of individual empowerment.

Bitcoin was born out of the Cypherpunk techno-political movement whose proponents championed privacy and had an anti-authoritarian bent that verged on anarchism.

And Nakamoto published his whitepaper six weeks after Lehman Brothers filed for bankruptcy and the world was coming to terms with the Global Financial Crisis (GFC) and the epic collapse of a self-serving financial system driven by greed.

Its hard to believe someone with such breadth of knowledge as Satoshi would be working in isolation from what he was witnessing in global financial markets, wrote Chris Burniske and Jack Tatar in their book Cryptoassets.

Satoshi was not creating Bitcoin to slip seamlessly into the existing governmental and financial system, but instead to be an alternative system free of top-down control, governed by the decentralised masses.

Indeed, the mysterious creator encoded a message on the first bitcoin transaction to act as an indelible reminder of the GFC and the principles upon which cryptocurrency was created: The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.

When the price of bitcoin crashed last month, no central authority came to its rescue; no one changed the rate of supply or adjusted the protocol the network just kept running.

Blockchain technology

You may have noticed a difference between the lower-case bitcoin and upper-case Bitcoin. Typically, the former refers to the cryptocurrency and the latter to the Bitcoin software which is the first working example of blockchain technology.

In the years since Bitcoins invention, different cryptocurrencies have evolved to include different ways of forming blocks and distributing coins while testing new use-cases for the technology.

What follows is a somewhat simplistic, and maths-less, description of the Bitcoin network and its features.

A blockchain is a collection of different records bunched together (blocks) that are cryptographically linked (chained).

In order to maintain its integrity, each block must be immutable so none of the information on the blockchain can be retroactively altered changed.

In the case of bitcoin, and many other cryptocurrencies, blockchains represent transactions on the network.

For example, say Alice sends Bob one bitcoin (BTC) from her wallet to his. The transaction occurs through a bitcoin node which bundles it together with other transactions on the network to form a block.

The job of a node is to test transactions and make sure that no one is double-spending coins. It keeps the information accurate by communicating with other nodes on the network.

At any given time, there are thousands of nodes running the Bitcoin peer-to-peer protocol and verifying the blockchain and because the code is open source, anybody can set up a Bitcoin node at home so long as they have the hardware, a decent internet connection, and the know-how.

For the block of bitcoin transactions to be confirmed by the network of Bitcoin nodes, it must be added to the blockchain, or mined.

A miner adds a new block to the chain by creating a cryptographic hash out of the new transaction data.

The hash is a fixed-size string created by combining the new transaction data, the last blocks hash, and another number called a nonce through the SHA-256 algorithm which basically scrambles the data in a very specific and difficult-to-untangle manner.

If this new hash matches certain criteria, or difficulty, then the miner sends it to the network for confirmation, is rewarded with bitcoin, and the new hash becomes the starting point for adding the next bundle of transactions to the blockchain.

If the hash doesnt meet the difficulty, the miner tries again.

Its mostly about luck so modern mining equipment is specially designed to go through a massive number of attempts in the shortest time often measured in terahashes (one million, million hashes) per second to increase their odds of finding the right hash and taking home the bitcoin prize.

Like network nodes, anybody can be a miner. There are even services like NiceHash that let people pool their idle computing power in order to run hashing algorithms and share in some of the rewards.

Between the nodes and miners, the Bitcoin network is designed to be a secure, decentralised way of exchanging bitcoin.

Digital gold

Unlike fiat currency, bitcoin is finite and deflationary. Only 21 million bitcoins will ever be mined but thats not due to happen until around 2140 due to the structure of Bitcoin.

Satoshi Nakamoto introduced different ways to keep the mining rate consistent while controlling the overall supply in such a way that adds scarcity to the cryptocurrency.

Firstly, each block should take around 10 minutes to mine. To achieve this, the network regularly checks the hash rate on the network and adjusts the criteria difficulty miners use to check if their hash is successful.

When the network notices the total hash rate the number of attempts to find the new blocks hash has changed, it will increase or decrease the mining difficulty to keep the rate of mining consistent.

The rate of mining rewards also changes. After every 210,000 new blocks are mined which happens roughly every four years the reward for miners who find the right hash is halved.

The last time this happened was May 2020 and it saw the reward for bitcoin miners drop from 12.5 to 6.25 bitcoins per block.

Because all this is programmed into Bitcoin, when the price of bitcoin tanks its up to broader market forces to decide their actions: miners might redirect their resources, investors cut losses, and exchanges prepare for sudden changes in liquidity.

The Bitcoin network doesnt have in-built stimulus packages or quantitative easing measures to pump extra coins into the market in times of economic stress; its not affected by the emotions of an uncertain electorate or the disproportionately loud voices of corporate lobby groups.

Since the first block was mined in 2009, Bitcoin has spawned an entire ecosystem of cryptocurrencies, many of which seek to improve on the ideas of the progenitor while finding novel ways to expand the underlying technology into all facets of our increasingly digital world.

In part II of the series, we will look at some of the alternative cryptocurrencies, how to buy them, and pitfalls to be aware of.

Continued here:

Cryptocurrency 101: the history of bitcoin - ACS

When cryptocurrencies fluctuate, they do not only affect investors wallets they have widespread effects on the entire market, Luther Lie writes.

Over the past several months, the world has witnessed anexplosionof investment in notoriously volatile cryptocurrencies, causing distortion in the financial market.

Most recently, Dogecoin, a cryptocurrency originally started as a joke jumped900 per cent and then plunged 30 per cent in just a month, and has risen 12,000 per cent overall this year. On the other side of the spectrum, Bitcoinrecently crashed 50 per cent in just a few weeks.

Volatile returns arent the only risk associated with cryptocurrencies though frauds are around too. Recently, an Istanbul-based cryptocurrency exchange, Thodex, shut down, reportedly taking with it $2 billion in investors money.

This begs the question: how did financial authorities allow cryptocurrencies to so suddenly make such a huge impact on the financial market?

Cryptocurrencies are a digital, private, and partially anonymous currency. Cryptocurrencies are mined by high-powered computers to solve complicated math equations, then stored and transferred as files held in an encrypted wallet. Many are stored on a decentralised network known as a blockchain. Hailed as a future medium of exchange, they are issued by private enterprises in an aim to combat central banks monopolies on the supply of money.

They are not pegged against any real-world currency, and users can trade peer-to-peer without intermediaries. This means the value of cryptocurrencies is heavily determined by demand and supply, making them function somewhat like a commodity, rather than being used primarily for transactions like a traditional currency.

The first cryptocurrency created was Bitcoin, established by Satoshi Nakamoto, who was inspired by an article on b-money written back in 1998 by computer scientist Wei Dai from the University of Washington.

Dais idea was to create a medium of exchange in which government intervention is not temporarily destroyed but permanently forbidden and permanently unnecessary. Ten years later, Nakamoto actioned this idea, creating Bitcoin.

Despite being a financial product, cryptocurrencies are barely regulated. This is a contrast to the highly regulated nature of the financial markets for traditional currencies, commodities, and stocks.

Earlier this year, the President of the European Central Bank (ECB), Christine Lagarde, voiced the ECBsintention to regulate cryptocurrencies. She also raised similar concerns as the Managing Director of the International Monetary Fund, an international institution that is responsible for regulating the currency exchange market. While there is some appetite for regulation, little progress has been made.

So, should cryptocurrencies be regulated, or would it undermine their worth?

Some have raised concerns about the regulation of cryptocurrencies, arguing that it could introduce transaction costs. Cryptocurrencies avoid these costs because they are traded peer-to-peer without the fees of intermediaries. Real-world currencies and stocks, which are regulated, carry a fee to be traded, collected by either banks or brokers.

Another concern is that the regulation of cryptocurrencies will affect their value. Unlike real-world currencies, cryptocurrencies cannot be devaluated by central banks, and some view this as one of their key assets.

These are valid concerns. However, cryptocurrencies should not be entirely left unregulated.

Cryptocurrencies are increasingly owned by retail investors almost 20 per cent of respondents to an Australian survey said they own cryptocurrencies, and 36 per cent of institutional investors in the United States and Europe also said they own cryptocurrencies. Like for any other financial products, regulators must protect the public who often do not have the sophisticated financial knowledge to analyse these markets and make informed decisions from losing large amounts of money, either by false investment projections, misleading news, or personal misjudgement.

Of all those respondents who said they owned cryptocurrency in the last year, more than 20 per cent lost money on their investment.

The wave of personal bankruptcies that would follow a large number of people losing their savings in cryptocurrencies similar to the too big to fail phenomenon could cripple a nations economy. In such an event, government bailouts would be necessary to save an economy.

The government response to the Thodex incident suggests the weakness of an unregulated cryptocurrency exchange. While the Turkish central bank has now prohibited the use of cryptocurrencies, investors money has been irrecoverably lost.

Amid the ban, a second Turkish cryptocurrency exchange,Vebitcoin, collapsed.

Cryptocurrencies are also highly susceptible to negative externalities. Although ostensibly difficult to mine and free from the intervention from central banks and intermediaries, the supply of cryptocurrencies is not stagnant.

Unlike real-world currencies, the production of cryptocurrencies is not controlled by a central producer. By monopolising cryptocurrencies mining resources, private enterprises that issue cryptocurrencies may be able to arbitrarily control demand and supply to influence their value.

Considering these weaknesses of cryptocurrencies, regulation would be well worth it. The huge gains offered by cryptocurrencies may sound alluring to public investors, especially during COVID-19 pandemic, but the fact that they come from an unregulated market meant that there will always be big losers in the game, to the cost of everyone.

Governments cant allow the financial system to be treated like a horse race, with investors embracing a win big or go home attitude. A financial product like cryptocurrencies affects public investors money, and if it fails, it will not only threaten their livelihoods it will potentially risk national economies.

The views expressed in this article are those of the author alone.

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Governments must act on the growth of cryptocurrencies - Policy Forum

But there was another link between the couple; one they didnt discover for a while. Biddulph knew who Satoshi was. In fact, he had personally designed the Billion to One card. Biddulph says its hard to recall exactly when it came up in conversation, but it was probably about a year or so into the relationship. I think I just mentioned it at random one day, he says. And she was like, 'Uhh, what!?'

Halls reaction was consistent with her life-long approach to puzzle-solving: I made him promise to never, ever tell, she says. Because if he just came out and revealed it, all of that work would have been for nothing. Biddulph respected the promise. I bit my tongue for years, he says. There was no teasing either. He knew it was important to me, says Hall. I think he enjoyed being mysterious about it, too.

Biddulph notwithstanding, it was around this time that Hall may have come within a close person-to-person connection with Satoshi. She received lots of tips via her website over the years. Mostly these werent much use, just dead-end leads, spoof messages or a photo of a random Asian guy found on Google images. But one tip stood out.

Subject: He's in Japan

My coworker used to live with Satoshi. She even brought an old photo of him to work today. Anyway, she said she does not know how to reach him, but that he is definitely in Japan right now, that he was in L.A. about three months ago.

I hope this helps.

It was anon so it might have been BS, says Hall, but it just seemed genuine. Hall responded but never received a reply. Years later, in 2011, the tip was still on her mind. She sent another follow up. This time, a response: I quit the job five years ago, so I don't think I'll be able to help you. Good luck.

Despite her resolution to work things out for herself, when she received a good tip, Hall mentioned it to Biddulph and scanned him for tells. Normally hed be completely stone faced with no reaction, she said. But this was the only time he reacted. It was so subtle, subconscious even. She adds: That was the most confirmation I wanted or could get. To think I was so close that did feel like sand slipping through my fingers. The trail went cold.

THE HUNT FOR Satoshi was not advancing. But technology was. The first cryptocurrency was founded, and Googling Satoshi now churned up results about Satoshi Nakamoto, the creator of Bitcoin. Some posited that the two were somehow connected (they were not). Smartphones were now in the pockets of millions. By 2010, Facebook and YouTube each had around half a billion users. Instagram had launched. A Perplex City player, going by Paraboloid13, actually cracked the cipher on the Thirteenth Labour card, according to reports from the community. Social media networks and the memes that flurried through them fuelled political movements from the Arab Spring to uprisings in Hong Kong. By the end of the decade, Facebook had 2.3 billion users and even TikTok, a relative newcomer, was pushing 1 billion. The good internet Hall fondly remembers was giving way to something more conflicted. Social media provided data for commercial and political interests. Algorithms moulded culture and society. People were falling down rabbit holes, and this time it really wasnt a game. Occasionally the Perplex City community would discuss Satoshi, or Halls website would receive a spike of interest thanks to a blog or a podcast, but for many years, the search was forgotten.

Then, in February 2020, as the coronavirus pandemic crept from person to person around the world, Inside a Mind, a YouTube channel with more than 600,000 followers, posted a video about the hunt for Satoshi. Can You Find This Man generated hundreds of thousands of views in a short space of time. The world went into lockdown. People had time on their hands. Spurred on by the video, and completely separate to Halls search, a Reddit and Discord group were set up. Suddenly hundreds of people many of whom had nothing to do with the original Perplex City game were passionately working to track down Satoshi. As Albert-Lszl Barabsi, a professor of network science and author of Linked: The New Science of Networks, puts it: When a hub gets infected, theres a dramatic change in the system.

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A mystery cube, a secret identity, and a puzzle solved after 15 years - Wired.co.uk

*This content is brought to you by CURRENCY HUB

By David Farelo*

CURRENCY HUB is a crypto advisory supporting crypto arbitrage, OTC and FOREX services. We have prepared a series of educational articles for the BizNews community to ensure they are better informed about the investment opportunities available through cryptocurrencies and blockchain technology.

A cryptocurrency is a virtual currency or digital asset that can be used to make secure, online payments. Cryptocurrencies are secured by computational phenomena called cryptography, which is hosted on a decentralised network referred to as the blockchain. All cryptocurrencies are powered by blockchain technology. The technology is essentially a database of transactional information known as a ledger, enforced by an independent, peer-to-peer network of over 100 000 computers around the world. Each block in the chain contains a number of transactions and every time a new transaction occurs, a record of that transaction is added to every participants ledger. This data is verified by the community and the validations performed by the computational sums determine the issuance and or reward of a cryptocurrency like Bitcoin.This makes it nearly impossible to counterfeit or double-spend when using cryptocurrencies and presents numerous investment opportunities through disruptive technology. All cryptocurrencies are powered by blockchain technology. The defining feature of cryptocurrencies is that they are generally not issued by a central authority, rendering them theoretically immune to government interference or manipulation.

The first blockchain technology was Bitcoin, created in January 2009 by an individual or group using the alias Satoshi Nakamoto. Bitcoin offered the promise of an online currency secured without a central authority, unlike government-issued currencies. There are no physical Bitcoins, only balances associated with a cryptographically secured public ledger. Think of Bitcoin as digital gold, a store of value, but not something you necessarily transact with.

Today, there are thousands of alternate cryptocurrencies, known as altcoins. Some altcoins that were spawned by Bitcoins success include Ethereum, Litecoin and Ripple. Ethereum is currently the second largest cryptocurrency and enables the deployment of smart contracts and decentralised applications. Ethereum has its own programming language, which runs on a blockchain that enables developers to build and run distributed applications on the Ethereum blockchain. Think of Ethereum as an open source network like the internet.

The potential applications of Ethereum are wide-ranging. It is powered by its native cryptographic token, ether (commonly abbreviated as eth). Ether is used by developers to build and run applications on the platform for two main purposes. It can be traded as a digital currency on exchanges in the same way as other cryptocurrencies and used on the Ethereum network to run applications.

Thanks to a peer-to-peer mindset and a blockchain like Ethereum, thousands of altcoins offer efficient and inexpensive ways to transact digitally, on the internet, using cryptocurrencies, stablecoins, security tokens and utility tokens. The most disruptive force on the Ethereum network is referred as DeFi (decentralised finance), which attracts a myriad of integrated services and company launches. These transactions rely on the mining of cryptocurrencies and the launch of new services referred to as ICOs (Initial Coin Offerings). ICOs churn out new currencies and ongoing development to improve the blockchain and verification of ledger activity as well as incentivise and reward participants.

The decentralised database is managed by multiple participants and is known as distributed ledger technology (DLT) where transactions are recorded with an immutable cryptographic signature called a hash. In simple terms, the blockchain can be described as a data structure that holds transactional records and ensures security, transparency and decentralisation. You can also think of it as a chain of records stored in the forms of blocks, which are not controlled by a single authority, hence the peer-to-peer community.

The blockchains that support Bitcoin and Ethereum are constantly growing as blocks are added to the chain, which significantly adds to the security of the ledger. Participants are attracted to the networks for several reasons, such as to mine cryptocurrencies, which involves verifying transactions recorded in the ledger to generate Bitcoins or to develop disruptive services made possible by smart contracts and decentralised finance (DeFi). Think of banking, investing, lending, remittance, insurance to name just a few and how a peer-to-peer community is cutting out the middlemen in the traditional financial world, increasing efficiency and reducing costs, all thanks to blockchain technology.

Look out for the following articles by CURRENCY HUB covering various investment opportunities for individuals and corporations, how Bitcoin differs from other digital assets, Bitcoin halving and its deflationary effect and Bitcoins status as digital gold.

Disclaimer: This article does not constitute financial advice. While the author and his firms are regulated by the FSCA, cryptocurrencies are not a regulated investment. Please refer to CURRENCY HUB https://currencyhub.co.za/ a juristic representative of BLACK ONYX (FSP 47701) https://blackonyx.co.za/ for more information.

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Cryptocurrencies and digital assets and how they rely on blockchain technology - BizNews